The vice-chancellor of Melbourne University has backed a review of student fees if tertiary funding is cut in next month's federal budget.

Professor Glyn Davis said it was a ''reality'' that students may have to contribute a greater share of the cost of their education or quality would be sacrificed.

''The question is: do we just take the cuts or is there some scope to lift fees? Do we run down our universities or do we look at other sources of income?

''No one wants to introduce higher fees but the reality won't go away just because it is difficult,'' Professor Davis said on Friday.

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''We are at an inflection point - we will look back and see this as an important moment for higher education in Australia.''

He encouraged a national debate on lifting student fees, saying the current funding system was ''incoherent'' and ''arbitrary''.

Professor Davis' comments follow the release of an Abbott government report on university funding that backed increased student contributions for some courses.

With the Coalition committed to delivering the previous Labor government's $2.3 billion cuts to higher education, Professor Davis said the entire system for funding university places needed to be rethought.

''There aren't very good explanations for why the Commonwealth pays 40 per cent for some degrees and only 18 per cent for others,'' he said.

The Kemp-Norton review also recommended extending federal funding to private for-profit colleges - an idea that has split the public university sector. Professor Davis said he would welcome more competition but the nation's peak universities group described the proposal as a ''huge gamble'' that would represent a ''radical change to the ecology of Australian higher education''.

Universities Australia CEO Belinda Robinson said: ''Without appropriate controls, expanding the demand-driven system to profit-motivated higher education providers could pose a substantial risk to the reputation of the entire sector, with devastating consequences.''

Education Minister Christopher Pyne flagged on Friday that he was open to the proposal by posting a link on his Facebook page to an article by University of Adelaide vice-chancellor Warren Bebbington that praised the ''teaching-only'' undergraduate colleges that operate in the US.

''Could we have US-style colleges in Australia as proposed by Warren Bebbington?'' Mr Pyne wrote.

A spokesman for Mr Pyne said the government was interested in expanding opportunities for tertiary students and ''ensuring Australia doesn't fall behind higher education in Asia''.

Funding private colleges and raising fees are both politically contentious ideas and would face fierce opposition from Labor and the Greens.

National Tertiary Education Union national president Jeannie Rea said raising fees could result in more students abandoning their courses because of fears of accumulating excessive debts.

National Union of Students national president Deanna Taylor said many students would forgo a degree if they believed their debt would be too high.

Australian Technology Network of Universities executive director Vicki Thomson said there might be scope for increased fees in ''chalk and talk'' courses such as business and law.